The present invention relates generally to an automated method and system for trading fixed income securities. More specifically the present invention provides an automated trading forum which enables institutional investors, broker dealers and others, to transact and trade directly and anonymously, investment grade corporate bonds, municipal bonds or other fixed income instruments. The system sponsor acts as counterparty to all transactions, from trade execution through settlement, and can also serve as a credit intermediary.
Electronic networks have eliminated many of the costs associated with an open outcry system. Electronic trading systems eliminate the need to maintain a trading representative on a market floor. Small entities and individual investors now have access to information and trading vehicles that were previously available only to institutional investors. However, the complexities of the fixed income market, wherein a multitude of securities each has distinctive characteristics, have caused many trading systems to be limited to a particular type or class of securities. Each fixed income security can have a different combination of structures, credit ratings, coupons, maturities, payment schedules or other characteristics. Although there are no regulatory limitations on the class of trading system, the current electronic trading available is generally relegated into one of five system type categories. These categories include dealer systems, cross-matching systems, primary market auction systems, interdealer systems and retail systems.
Dealer systems are generally constructed such that an investor can execute a transaction concerning fixed income securities directly with a fixed income security dealer. It has been known for a dealer system to use a public network, such as the Internet, or a proprietary network. Proprietary networks can additionally permit trading using consolidated orders involving multiple dealers.
An interdealer system provides anonymous transactions between dealers wherein the trading service acts as a broker""s broker. A cross-matching system automatically matches orders that meet a predetermined criteria. The speed and uniform accessibility to the electronic trading platform allows for cross-matching systems to provide real-time trading to all participants. A primary market auction system is specialized towards new debt offerings. Dealers and investors are given an electronic form to bid on new issues. Retail systems generally include on-line brokers which allow individual investors to execute transactions for fixed income securities. Generally, automatic execution of fixed income transactions is limited by regulatory requirements.
It is known to have an electronic transaction system with a database of bond offerings wherein a user can search the database for securities meeting the user""s specific criteria. The user can also receive real-time pricing information and conduct transactions on an automatic execution basis. Examples of fixed income securities can include U.S. treasury notes and bonds, federal agency securities, commercial paper instruments, foreign exchange spot, forwards and options, discount notes, municipal securities, repurchase agreements and other security types. An electronic trading system may subject each trade to acceptance by the institution hosting the system. Other systems allow for automatic trades within predetermined constraints.
Tools available as enhancements to an electronic trading system can include a searchable database of bond offerings from multiple dealers and a database of callable and bullet certificates of deposit. Additionally e-mail notification services can also alert users to important information relating to the trades. Information can include changes in federal policy actions, daily or weekly fixed income market wrap-ups, or other pertinent information. Systems can allow a customer to automatically record information relating to trading transactions. Other systems allow customers to determine which dealers will receive a customer inquiry. In turn, the customers only see bids and offers from the predetermined list of dealers.
Electronic systems can also include predetermined time limits between the time of bid or offer and the time of acceptance. For example, a customer may have a limited time to execute a trade at a price on the wire. After the time limit expires, a dealer""s price may become a subject price wherein a customer can hit or lift the subject price. However, the dealer retains the option to approve the trade at the subject price. If the market has moved, the dealer may counter with a new price and a new on-the-wire time period. A party can nullify the transactions within the predetermined time periods.
Auction systems can allow dealers and investors to submit bids electronically during a predetermined auction time period. During the auction period, competing bidders can improve bids for a particular issue. The terms of the transaction can include the size and preferred maturity date. Variations on the electronic auctions include xe2x80x9cDutchxe2x80x9d auctions which allow a user to anonymously enter a bid. The entire auction bid is equal in size to an aggregate size of the bids still in the money at the close of the auction, and equal in price to that specified by the lowest of such bids, the determining bid.
Other electronic systems such as those offered by the U.S. Treasury Department, allow investors with existing treasury direct accounts to purchase U.S. treasury bills, notes and bonds through the Treasury Department""s Website on the Internet with non-competitive bids. Cross-matching systems can match orders on a price/time priority basis according to criteria of the issuer. Orders can be stored and displayed anonymously such that they can be matched according to the predetermined price/time priority.
However none of the known systems provides a liquidity commitment, which can be essential to the success of a trading environment. There is a growing call from market participants and regulators for broader access and enhanced price transparency in the fixed income market. In addition, it would be useful to consolidate a fragmented market and establish greater liquidity in the bond market. What is needed is a system which will allow direct trading between anonymous market participants and provide price transparency, as well as a commitment to liquidity. However, the market size and complexity for fixed income products and the established roles of market participants have heretofore hindered such an embodiment.
Accordingly, the present invention includes a method and system providing automated trading of fixed income securities which can enable institutional investors, broker dealers and others, to transact directly and anonymously for the purpose of trading investment grade, high yield corporate bonds, municipal bonds or other fixed income securities. A financial institution acting as a fixed income security trading system sponsor can act as counterparty to transactions from trade execution through settlement, and can also serve as a credit intermediary. Computer systems are utilized in conjunction with an electronic communications network to facilitate fixed income security trading activities. Software routines are utilized to direct a trader to various fixed income securities available according to specific criteria put forth by the trader. Software routines can also provide information and services related to the automated trading of fixed income securities.
In one embodiment, the present invention provides a computer-implemented method for providing fixed income securities via a communications network such as the Internet. Data relating to trading a fixed income security is transmitted from a Fixed Income Trading (FIT) system and information relating to the sale of a fixed income security is received. A live order, based upon the sale information received, can then be executed or transmitted to a point of execution. The live order provides that the FIT system acts as counterparty to each transaction such that a client trader can remain anonymous to a party on the other side of a trade. In this manner, a first trade can be executed between a party selling a fixed income security and the FIT system, and a second trade can be executed between the FIT system and a party purchasing the fixed income security. In addition, the FIT system operators can commit to market liquidity for the fixed income security traded. Numerous types of fixed income securities can be traded, including investment grade, high yield corporate bonds, municipal bonds or other types of securities.
A credit checking service can also be automated and incorporated into the present invention. Financial data related to the live order can be transmitted to a credit system and approval from the credit system to process the trade can be received. In one embodiment, transmission of the financial data can be accomplished by real time trade monitoring via client web access. The credit service can provide a credit authorization for a given trade after referencing a credit limit for the client involved and calculating a level of credit extended to the client inclusive of an amount necessary to execute the order. When all appropriate input has been received, the FIT system can execute the trade. Data related to the trade can be transmitted to a settlement system.
Monitoring client access to the fixed income trading system can accomplished in real time. In this sense real time can include responses as fast as a computer system involved can process the data with no artificial delays programmed in.
One aspect of the present invention includes a method for a client to interact with a network access device in order to complete a fixed income security transaction. The network access device can be used to interact with a host computer via a communications network. The client can view graphical user interface (GUI) presented via a data stream content. The GUI can include interactive areas with offers to buy or sell a fixed income security. The network access device can be used to transmit an instruction to execute an anonymous trade relating to a specific fixed income security and receive confirmation of an executed trade relating to the specific fixed income security. A provider of the host computer can act as counterparty to the client in the trade. The client can also receive a commitment regarding market liquidity relating to the specific fixed income security.
Another aspect of the present invention includes a computer system that provides fixed income trading. A computer server can be made accessible to a network access device via a communications network. Software stored on the server and executed on demand can be operative with the server to cause the system to provide the functionality described above relating to fixed income trading.
In addition, the software can be operative to cause the system to act as counterparty to a trade responsive to a fixed income security order and/or to act as counterparty to an additional trade offsetting a live order.
The computer communications system can conform to the transmission control protocol/internet protocol or other protocol. In addition, the communications network can include a private network, or a public network, such as the Internet.
Other embodiments of the present invention include a computer executable program code residing on a computer-readable medium or a computer data signal embodied in a digital data stream.
The details of one or more embodiments of the invention are set forth in the accompanying drawings and the description below. Features, objects, and advantages of the invention will be apparent from the description, the drawings and the claims.